Down Payment Basics

There are a few different scenarios when deciding what size of a down payment to have for a new purchase or home loan. The first and most popular scenario is the 3% FHA loan program. This program allows buyers to have a reasonably small down payment, while still being able to qualify for their purchase. However, there is PMI, Private Mortgage Insurance, applied to loans with this percentage down, adding to monthly costs.

There are other options available for buyers, and their down payment options. Another popular option that is also a money saver is for those that can provide 10% down for their new loan. There are programs available that include a 5/1 ARM loan, or Adjustable Rate Mortgage. This means that the interest rate of the loan will change for the duration of the loan after five years has passed. The others include repayment terms such as 15, 30, and even 40 year loans. There is PMI assessed on the payments for this type of down payment.

The next option for borrowers is to provide 20% down. This amount allows buyers to have marginal credit scores of 650 or higher, there is no PMI assessed on the loan, and like the other two options, this group would qualify for all of the other benefits listed. Higher loan amounts are also considered for this amount down, making it easier for those who have higher down payments to purchase homes that are considered high volume or bulk loans.